Risk Theory, Reinsurance, and Capitation

Risk theoretic analysis of capitation contracts suggests that capitation contracts are closely aligned to reinsurance contracts between insurance companies. Similarities and differences between these two forms of contractual instruments are reviewed, and several implications are discussed. Viewing capitation contracts as reinsurance contracts has implications that are incompatible with the overall purpose of these agreements as financing mechanisms for health care service provision. Legal, ethical, financial, and operational implications are reviewed, and the suggestion is made that these contracts are against the public interest and that litigation by providers and consumers may be appropriate under extant contract law.